MANAGEMENT ACCOUNTING (MBA 002)

Assignment 3

Example: M Manufacturing Co. uses job order costing for its products. The following data are given:

(In thousands of pesos) Job No. 12 Job No. 13 Job No. 14 Job No. 15 Total
In Process, May 1, 2010:
Direct Materials P8,000 P5,000 P13,000
Direct Labor 3,000 1,800 4,800
Mfg. overhead applied 1,200 720 1,920
P12,200 P7,520 P19,720
Mfg. costs incurred for May:
Direct Materials P6,000 P7,000 P7,500 P1,000 P21,500
Direct Labor 2,000 1,600 2,500 500 6,600
Mfg. overhead applied 800 640 1,000 200 2,640
P8,800 P9,240 P11,000 P1,700 P30,740
Accumulated costs:
May 31, 2010 P21,000 P16,760 P11,000 P1,700 P50,460

Additional information given: Jobs 12, 13, 14 are completed in the month of May, 2010.
Conclusion from the information given: Work In-process, beginning therefore is Jobs 12 and 13 for P19,720,
while Work In-process ending is Job No. 15 amounting to P1,700. Cost of goods manufactured then is:

Job No. 12 P21,000

Job No. 13 16,760
Job No. 14 11,000
Cost of goods manufactured P48,760

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 Work in Process
May 1 Balance P19,720 May 1 -31 Cost of goods manufactured P 48,760
1-31 Direct materials 21,500 31 Balance 1,700
Direct labor 6,600
Mfg. overhead applied 2640
Total P50,460 Total P50,460
June 1 Balance P1,700

M Manufacturing Co.
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 2010
Direct Materials P21,500
Direct Labor 6,600
Manufacturing Overhead Applied 2,640
Total Manufacturing Costs P30,740
Add: Work In Process Inventory, May 1 19,720
Total Cost Of Goods In Process P50,460
Less: Work In Process Inventory, May 31 1,700
Cost Of Goods Manufactured P48,760

Problem #1

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Gold Nest Company uses job order costing system in which overhead is applied to jobs on the basis of direct
labor cost. Estimated total direct labor cost for the year would be $200,000 and total manufacturing overhead
cost would be $330,000. Inventory balance at the beginning of the year were Raw materials at $25,000, work in
process at $10,000 and finished goods at $40,000. During the year, the following transactions were completed:
a. Raw materials purchased for cash, $275,000
b. Raw materials requisitioned for use in production, $280,000. Materials charged directly to jobs,
$220,000, the remaining materials were indirect.
c. Cost of employee services were direct labor, $180,000; indirect labor, $72,000; sales commissions,
$63,000, and administrative salaries, $90,000.
d. Rent for the year was $18,000 of which $13,000 is related to factory operations and the rest to selling and
administrative activities.
e. Factory utility costs incurred, $57,000. Advertising costs, $140,000.
f. Depreciation recorded on equipment, $100,000, out of which $88,000 was for factory equipment and the
remaining was on equipment used in selling and administrative activities.
g. Based on the job order cost sheets, goods manufactured and completed during the year cost $675,000
h. Sales for the year, $1,250,000. Cost to manufacture these goods according to their job cost sheets was
$700,000.
Required: 1. Compute the total manufacturing overhead (MOH) applied to jobs for the year. Is the MOH
under-applied or over-applied? Close the balance to cost of goods sold and prepare statement of cost of
goods manufactured and income statement for the year.

Problem #1

Manufacturing overhead applied per unit $ 330,000.00 / $ 200,000.00 = 1.65

MOH applied for the year $ 180,000 x 1.65 = $ 297,000.00
Actual Manufacturing overhead:
Indirect Materials (280,000 – 220,000) $ 60,000.00
Indirect Labor 72,000.00
Rent Expense – Factory 13,000.00
Utility Expense – Factory 57,000.00
Depreciation – Factory equipment 88,000.00
Total $ 290,000.00
Over-applied MOH $ 7,000.00

Gold Nest Company

Statement of Cost of Goods Manufactured

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 For the Year Ended December 31, 20xx

Raw Materials used $ 230,000.00

Direct Labor 180,000.00
Manufacturing Overhead applied 290,000.00
Total Manufacturing costs $ 700,000.00
Add: Work in Process, Jan. 1 10,000
Total cost of goods in process $ 710,000.00
Less: Work in Process, Dec. 31 35,000.00
Cost of Goods Manufactured $675,000.00

Gold Nest Company

Income Statement
For the Year Ended December 31, 20xx
Sales $1,250,000.00
Less cost of goods sold ($ - $ ).......
Gross margin.............................................................. $
Less selling and administrative expenses:

Advertising expense.................................................$ 140,000.00

Administrative salaries............................................... 90,000.00
Sales commissions..................................................... 63,000.00
Rent expense.............................................................. 5,000.00
Depreciation expense................................................. 12,000.00
Net operating income................................................. $

Problem #2:

Almeda Products, Inc. uses a job order costing system. Inventory balances on April 1 were raw materials,
$32,000; work in process, $20,000; and finished goods, $48.000
Additional information are as follows:
a. Raw materials purchased $170,000.
b. Raw materials issued from storeroom to production $180,000; 80% direct and 20% indirect.
c. Direct labor $200,000; indirect labor $82,000; and selling and administrative salaries $90,000.
d. Utility costs incurred in the factory, $65,000. Advertising costs $100,000

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e. Insurance Expense $20,000; 90% factory related and 10% selling and administrative related.
f. Depreciation Expense $180,000; 85% for factory assets and 15% for selling and administrative assets
g. Predetermined overhead rate is 175% of direct labor cost. Cost of goods manufactured was $700,000
h. Sales for the year, $1,000,000; cost of the goods sold, $720,000.

Required: 1. Compute for the under- or over-applied overhead for the year. Is it under-applied or over-applied?
2. Compute for the ending balance of raw materials, work in process and finished goods.
3. The company under- or over-applied overhead to cost of goods sold. Prepare an income statement.

Problem #4:

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct
materials used in production (not on the basis of raw materials purchased.) In computing a predetermined
overhead rate at the beginning of the year, the company’s estimates were: manufacturing overhead cost,
$800,000; and direct materials to be used in production, $500,000. The company has provided the following
data :
Beginning Ending
Raw materials $20,000 $80,000
Work in Process 150,000 70,000
Finished Goods 260,000 400,000

The following actual costs were incurred during the year:

Purchase of direct raw materials $510,000
Direct labor cost 90,000
Manufacturing overhead costs:
Indirect labor 170,000
Property taxes 48,000
Depreciation- equipment 260,000
Maintenance 95,000
Insurance 7,000
Rent - Building 180,000

Required:
1. a. Compute the predetermined overhead rate for the year
b. Compute the amount of under- or over-applied overhead for the year.
1. Prepare the statement of cost of goods manufactured for the year.
2. Compute the Cost of Goods Sold for the year. (Do not include the under- or over-applied overhead in the
cost of goods sold.) What options are available for disposing of under- or over-applied overhead?
3. Job 215 was started and completed during the year. What price would have been charged to customer if
the job required $8,500 in direct materials and $2,700 in direct labor cost and the company priced its jobs at
25% above the job’s cost to absorb period cost as well as provide for profit?
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4. If direct materials made up $24,000 of the ending work in process inventory balance. How much is the
direct labor cost and the manufacturing overhead?